Telecoms shake-up
TELKOM and Vodacom are both poised for a major shake-up in their strategies and future growth as the two operators prepare to part ways.
Exactly what their futures hold is uncertain, since the deal for Telkom to shed its 50% stake in Vodacom presents various challenges and opportunities that may gel only once the deed is done.
The move itself is simple: Telkom will sell 15% to Vodacom’s joint-owner, Vodafone, for R22,5bn, and unbundle the remaining 35% to Telkom shareholders by listing Vodacom on the JSE.
Telkom shareholders will also pocket a tasty special dividend from the cash that Vodafone hands over for the 15%.
Then the fun begins. Telkom will need to reinvent itself quickly, while Vodacom will need to thrash out new rules of engagement once it is majority owned by a British parent.
Telkom shares gained almost 5% last week to hit R113,50 as investors jumped in. In contrast, London-listed Vodafone dived 16% to £1.
Initially Vodafone offered R18,75bn for 12,5% of Vodacom, so the price it is prepared to pay has not slipped despite tumbling stock markets, possibly making its shareholders suspect it is overpaying.
Kaplan Equity Analysts MD Irnest Kaplan says this is “a hell of a good deal” for Telkom. “It’s the same price they were talking about some time ago despite changing world markets that have seen the price of everything fall.”
He doubts the deal triggered the slump in Vodafone’s shares, however. “I wouldn’t imagine this caused the 16% drop because its share price is orders of magnitude bigger than this deal.”
Imara SP Reid analyst Steve Meintjes rates Telkom a buy at up to R158. “We think this is an adequate control premium and Telkom should accept it with alacrity,” he says.
Vodacom’s new CEO, Pieter Uys, will not comment yet, saying it is an issue for shareholders rather than managers until its conclusion. But he keenly supports the move, and has made it a priority to lobby Vodafone to allow Vodacom the freedom to grow in Africa.
Many African countries have cellphone penetration rates of less than 10%, which Uys is eager to tackle.
Yet the existing shareholder agreement bars Vodacom from expanding further into Africa so Vodafone can tackle the territory itself. That shackle has forced Vodacom to watch in envy as its rival MTN conquered Africa.
It is not clear yet whether Vodacom will be free to expand once it is majority-owned by Vodafone, which is already active in Egypt, Ghana and Kenya. It may prefer to continue alone, because if Vodacom takes the lead, 35% of its profits will have to be handed over to its minority shareholders.
Vodafone’s foreign expansion was driven by its former CEO, Arun Sarin, who resigned in July and was succeeded by Vittorio Colao. Encouragingly, Sarin said he would use Vodacom as a springboard to acquire other African operators, and that may remain the policy under Colao as he continues to push into Africa and Asia.
One reason Vodafone may be willing to seal this deal at what has become a generous premium could be to move quickly on African expansion. As market values tumble, it could use Vodacom to acquire more African operators at discounted prices.
Once the deal is done, Telkom will lack a mobile partner at a time when operators must offer a blend of fixed and mobile voice and data services to remain relevant. So Telkom has already begun preparing to offer cellphone calls and high-speed internet access by rolling out a new wireless network in urban areas.
With Vodacom stripped out, Telkom will be left holding SA’s national fixed line infrastructure, some voice and data operations in Nigeria and Africa Online, an internet service provider in nine countries.
The black investment group Mvelaphanda has offered to buy Telkom and take over those assets, but the talks were shelved last month when market values became a volatile moving target.
Some analysts believe Telkom needs fresh owners to guide its evolution, and yearn to see it taken over. Kaplan is less critical, saying: “I don’t think Telkom needs someone to take it over.” A better option may be to form loose partnerships with other players to help it navigate the converging environment.
“It can build its own wireless network or form some kind of partnership with MTN, Cell C or even Vodacom on a commercial agreement. I don’t think it needs a mobile operator to be in bed with it, but it would help if it had a partner with a big wireless infrastructure.”
The decision will depend on which markets Telkom wants to serve. If it
As for Vodafone, the deal will give it 65% of “an attractive asset” with strong positions in SA, the Democratic Republic of Congo, Lesotho, Mozambique and Tanzania. Vodafone already serves 260 million customers, making it the world’s second most prolific operator after China Mobile with 370-million.
Its bid to gain control of Vodacom remains subject to a number of conditions. But all three companies have worked on this for so long and with such determination that the chance of it failing is negligible.
Loading ...